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Exhibit 10.17  


 
 

MAKEMUSIC! INC.
  2003 EQUITY INCENTIVE PLAN    
    


SECTION 1.
DEFINITIONS


        As
used herein, the following terms shall have the meanings indicated below: 



        (a)   "Administrator"
shall mean the Board or the Committee, as the case may be. 


        (b)   "Affiliate"
shall mean a Parent or Subsidiary of the Company. 


        (c)   "Award"
shall mean any grant of an Option, Restricted Stock Award, Stock Appreciation Right or Performance Award. 


        (d)   "Committee"
shall mean a Committee of two or more directors who shall be appointed by and serve at the pleasure of the Board. If the Company's securities are registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, then, to the extent necessary for compliance with Rule 16b-3, or any successor provision, each of
the members of the Committee shall be a "non-employee director." Solely for purposes of this Section 1(a), "non-employee director" shall have the same meaning as set
forth in Rule 16b-3, or any successor provision, as then in effect, of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended. Further, to the
extent necessary for compliance with the limitations set forth in Internal Revenue Code Section 162(m), each of the members of the Committee shall be an "outside director" within the meaning of
Code Section 162(m) and the regulations issued thereunder. 


        (e)   The
"Company" shall mean MakeMusic! Inc., a Minnesota corporation. 



        (f)    "Fair
Market Value" as of any date shall mean (i) if such stock is listed on the Nasdaq National Market, Nasdaq SmallCap Market, or an established stock exchange,
the price of such stock at the close of the regular trading session of such market or exchange on such date, as reported by The Wall Street Journal or a
comparable reporting service, or, if no sale of such stock shall have occurred on such date, on the next preceding day on which there was a sale of stock; (ii) if such stock is not so listed on
the Nasdaq National Market, Nasdaq SmallCap Market, or an established stock exchange, the average of the closing "bid" and "asked" prices quoted by the OTC Bulletin Board, the National Quotation
Bureau, or any comparable reporting service on such date or, if there are no quoted "bid" and "asked" prices on such date, on the next preceding date for which there are such quotes; or
(iii) if such stock is not publicly traded as of such date, the per share value as determined by the Board, or the Committee, in its sole discretion by applying principles of valuation with
respect to the Company's Common Stock. 


        (g)   The
"Internal Revenue Code" is the Internal Revenue Code of 1986, as amended from time to time. 


        (h)   "Option"
means an incentive stock option or nonqualified stock option granted pursuant to the Plan. 



        (i)    "Option
Stock," "Stock" or "Common Stock" shall mean Common Stock of the Company (subject to adjustment as described in Section 14) reserved for Options,
Restricted Stock Awards, Stock Appreciation Rights and Performance Shares pursuant to this Plan. 


        (j)    "Parent"
shall mean any corporation which owns, directly or indirectly in an unbroken chain, fifty percent (50%) or more of the total voting power of the Company's
outstanding stock. 


        (k)   The
"Participant" means a key employee of the Company or any Subsidiary to whom an incentive stock option has been granted pursuant to Section 9; a consultant or
advisor to, or director, key employee or officer, of the Company or any Subsidiary to whom a nonqualified stock option has 





 



been
granted pursuant to Section 10; or a consultant or advisor to, or director, key employee or officer, of the Company or any Subsidiary to whom a Restricted Stock Award has been granted
pursuant to Section 11; or a consultant or advisor to, or director, key employee or officer, of the Company or any Subsidiary to whom a Performance Award has been granted pursuant to
Section 12; or a consultant or advisor to, or director, key employee or officer, of the Company or any Subsidiary to whom a Stock Appreciation Right has been granted pursuant to
Section 13. 


        (l)    "Performance
Award" shall mean any Performance Shares or Performance Units granted pursuant to Section 12 hereof. 


        (m)  "Performance
Period" shall mean the period, established at the time any Performance Award is granted or at any time thereafter, during which any performance goals
specified by the Administrator with respect to such Performance Award are to be measured. 



        (n)   "Performance
Share" shall mean any grant pursuant to Section 12 hereof of an award, which value, if any, shall be paid to a Participant by delivery shares of
Common Stock of the Company upon achievement of such performance goals during the Performance Period as the Administrator shall establish at the time of such grant or thereafter. 


        (o)   "Performance
Unit" shall mean any grant pursuant to Section 12 hereof of an award, which value, if any, shall be paid to a Participant by delivery of cash upon
achievement of such performance goals during the Performance Period as the Administrator shall establish at the time of such grant or thereafter. 



        (p)   The
"Plan" means the MakeMusic! Inc. 2003 Equity Incentive Plan, as amended hereafter from time to time, including the form of Agreements as they may be modified
by the Administrator from time to time. 


        (q)   "Restricted
Stock Award" shall mean any grant of restricted shares of Common Stock of the Company pursuant to Section 11 hereof. 


        (r)   "Stock
Appreciation Right" shall mean a grant pursuant to Section 13 hereof. 



        (s)   A
"Subsidiary" shall mean any corporation of which fifty percent (50%) or more of the total voting power of outstanding stock is owned, directly or indirectly in an
unbroken chain, by the Company. 


SECTION 2.
PURPOSE


        The
purpose of the Plan is to promote the success of the Company and its Subsidiaries by facilitating the employment and retention of competent personnel and by furnishing incentive to
officers, directors, employees, consultants, and advisors upon whose efforts the success of the Company and its Subsidiaries will depend to a large degree. 



        It
is the intention of the Company to carry out the Plan through the granting of Options which will qualify as "incentive stock options" under the provisions of Section 422 of the
Internal Revenue Code, or any successor provision, pursuant to Section 9 of this Plan, through the granting of Options that are "nonqualified stock options" pursuant to Section 10 of
this Plan, through the granting of Restricted Stock Awards pursuant to Section 11 of this Plan, through the granting of Performance Awards pursuant to Section 12 of this Agreement and
through the granting of Stock Appreciation Rights pursuant to Section 13 hereof. Adoption of this Plan shall be and is expressly subject to the condition of approval by the shareholders of the
Company within twelve (12) months before or after the adoption of the Plan by the Board of Directors. In no event shall any Options, Restricted Stock Awards, Performance Awards or Stock
Appreciation Rights be granted prior to the date this Plan is approved by the shareholders of the Company. 


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SECTION 3.
EFFECTIVE DATE OF PLAN



        The
Plan shall be effective as of the date of adoption by the Board of Directors, subject to approval by the shareholders of the Company as required in Section 2. 


SECTION 4.
ADMINISTRATION


        The
Plan shall be administered by the Board of Directors of the Company (hereinafter referred to as the "Board") or by a Committee which may be appointed by the Board from time to time
to administer the Plan (hereinafter collectively referred to as the "Administrator"). Except as otherwise provided herein, the Administrator shall have all of the powers vested in it under the
provisions of the Plan, including but not limited to exclusive authority to determine, in its sole discretion, whether an Award shall be granted; the individuals to whom, and the time or times at
which, such Awards shall be granted; the number of shares subject to each such Award, the performance criteria, if any, and any other terms and conditions of each Award. The Administrator shall have
full power and authority to administer and interpret the Plan, to make and amend rules, regulations and guidelines for administering the Plan, to prescribe the form and conditions of the respective
Awards (which may vary from Participant to Participant) evidencing each Award, and to make all other determinations necessary or advisable for the administration of the Plan. The Administrator's
interpretation of the Plan, and all actions taken and determinations made by the Administrator pursuant to the power vested in it hereunder, shall be conclusive and binding on all parties concerned. 


        No
member of the Board or the Committee shall be liable for any action taken or determination made in good faith in connection with the administration of the Plan. In the event the Board
appoints a Committee as provided hereunder, any action of the Committee with respect to the administration of the Plan shall be taken pursuant to a majority vote of the Committee members or pursuant
to the written resolution of all Committee members. 


SECTION 5.
PARTICIPANTS



        The
Administrator shall from time to time, at its discretion and without approval of the shareholders, designate those employees, officers, directors, consultants, and advisors of the
Company or of any Subsidiary to whom Awards shall be granted under this Plan; provided, however, that consultants or advisors shall not be eligible to receive Awards hereunder unless such consultant
or advisor renders bona fide services to the Company or Subsidiary and such services are not in connection with the offer or sale of securities in a capital raising transaction and do not directly or
indirectly promote or maintain a market for the Company's securities. The Administrator shall, from time to time, at its discretion and without approval of the shareholders, designate those employees
of the Company or any Subsidiary to whom Awards shall be granted under this Plan. The Administrator may grant additional Awards under this Plan to some or all Participants then holding Awards, or may
grant Awards solely or partially to new Participants. In designating Participants, the Administrator shall also determine the number of shares subject to each Award granted to each Participant and,
with respect to Performance Awards, the performance criteria applicable to each Participant. The Administrator may from time to time designate individuals as being ineligible to participate in the
Plan. 


SECTION 6.
STOCK



        The
capital stock to be issued under this Plan shall consist of authorized but unissued shares of Stock. Seven hundred fifty thousand (750,000) shares of Stock shall be reserved and
available for Awards under the Plan; provided, however, that the total number of shares of Stock reserved for Awards under this Plan shall be subject to adjustment as provided in Section 14 of
the Plan. In the 


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event
that any outstanding Option, Stock Appreciation Right, Performance Share Award or Restricted Stock Award under the Plan for any reason expires or is terminated prior to the exercise of the
Option or Stock Appreciation Right, prior to the achievement of the performance criteria under the Performance Share Award, or prior to the lapsing of the risks of forfeiture on the Restricted Stock
Award, the shares of Stock allocable to the unexercised portion of such Option or Stock Appreciation Right, to the unearned portion of the Performance Share Award or to the forfeited portion of the
Restricted Stock Award shall continue to be reserved for Options, Stock Appreciation Rights, Performance Share Awards and Restricted Stock Awards under the Plan and may be optioned or awarded
hereunder. 


SECTION 7.
DURATION OF PLAN



        Incentive
stock options may be granted pursuant to the Plan from time to time during a period of ten (10) years from the effective date as defined in Section 3. Other
Awards may be granted pursuant to the Plan from time to time after the effective date of the Plan and until the Plan is discontinued or terminated by the Board. 


SECTION 8.
PAYMENT


        Participants
may pay for shares of Stock of the Company upon exercise of Options granted pursuant to this Plan with cash, personal check, certified check or, if approved by the
Administrator in its sole discretion, previously-owned shares of the Company's Common Stock, or any combination thereof, or such other form of payment as may be authorized by the Administrator. Any
Stock so tendered as part of such payment shall be valued at such Stock's then Fair Market Value. The Administrator may, in its sole discretion, limit the forms of payment available to the Participant
and may exercise such discretion any time prior to the termination of the Option granted to the Participant or upon any exercise of the
Option by the Participant. "Previously-owned shares" means shares of the Company's Common Stock which the Participant has owned for at least six (6) months prior to the exercise of the stock
option, or for such other period of time as may be required by generally accepted accounting principles. 



        With
respect to payment in the form of Common Stock of the Company, the Administrator may require advance approval or adopt such rules as it deems necessary to assure compliance with
Rule 16b-3, or any successor provision, as then in effect, of the General Rules and Regulations under the Securities Exchange Act of 1934, if applicable. 


SECTION 9.
TERMS AND CONDITIONS OF INCENTIVE STOCK OPTIONS


        Each
incentive stock option granted pursuant to this Section 9 shall be evidenced by a written stock option agreement (the "Option Agreement"). The Option Agreement shall be in
such form as may be approved from time to time by the Administrator and may vary from Participant to Participant; provided, however, that each Participant and each Option Agreement shall comply with
and be subject to the following terms and conditions: 


        (a)    Number of Shares and Option Price.    The Option Agreement shall state the total number of shares covered by
the incentive stock option. Except as permitted by Section 424(d) of the Internal Revenue Code, or any successor provision, the option price per share shall not be less than one hundred percent
(100%) of the per share Fair Market Value of the Company's Common Stock on the date the Administrator grants the option; provided, however, that if a Participant owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the Company or of its Parent or any Subsidiary, the option price per share of an incentive stock option granted to such
Participant shall not be less than one hundred ten percent (110%) of the per share Fair 


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Market
Value of the Company's Common Stock on the date of the grant of the option. The Administrator shall have full authority and discretion in establishing the option price and shall be fully
protected in so doing. 


        (b)    Term and Exercisability of Incentive Stock Option.    The term during which any incentive stock option granted
under the Plan may be exercised shall be established in each case by the Administrator. In no event shall any incentive stock option be exercisable during a term of more than ten (10) years
after the date on which it is granted; provided, however, that if a Participant owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the
Company or of its Parent or any Subsidiary, the incentive stock option granted to such Participant shall be exercisable during a term of not more than five (5) years after the date on which it
is granted. 


        The
Option Agreement shall state when the incentive stock option becomes exercisable and shall also state the maximum term during which such option may be exercised. In the event an
incentive stock option is exercisable immediately, the manner of exercise of such option in the event it is not exercised in full immediately shall be specified in the Option Agreement. The
Administrator may accelerate the exercisability of any incentive stock option granted hereunder which is not immediately exercisable as of the date of grant. 


        (c)    Nontransferability.    No incentive stock option shall be transferable, in whole or in part, by the Participant
other than by will or by the laws of descent and distribution. During the Participant's lifetime, the incentive stock option may be exercised only by the Participant. If the Participant shall attempt
any transfer of any incentive stock option granted under the Plan during the Participant's lifetime, such transfer shall be void and the incentive stock option, to the extent not fully exercised,
shall terminate. 


        (d)    No Rights as Shareholder.    A Participant (or the Participant's successor or successors) shall have no rights
as a shareholder with respect to any shares covered by an incentive stock option until the date of the issuance of a stock certificate evidencing such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property), distributions or other rights for which the record date is prior to the date such stock certificate is actually issued
(except as otherwise provided in Section 14 of the Plan). 


        (e)    Withholding.    The Company or its Affiliate shall be entitled to withhold and deduct from future wages of the
Participant all legally required amounts necessary to satisfy any and all withholding and employment-related taxes attributable to the Participant's exercise of an incentive stock option or a
"disqualifying disposition" of shares acquired through the exercise of an incentive stock option as defined in Code Section 421(b). In the event the Participant is required under the Option
Agreement to pay the Company or its Affiliate, or make arrangements satisfactory to the Company or its Affiliate respecting payment of, such withholding and employment-related taxes, the Administrator
may, in its discretion and pursuant to such rules as it may adopt, permit the Participant to satisfy such obligation, in whole or in part, by electing to have the Company or its Affiliate withhold
shares of Option Stock otherwise issuable to the Participant as a result of the exercise of the incentive stock option having a Fair Market Value equal to the minimum required tax withholding, based
on the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to the supplemental income resulting from such exercise. In no event may the
Company or its Affiliate withhold shares having a Fair Market Value in excess of such statutory minimum required tax withholding. The Participant's election to have shares withheld for this purpose
shall be made on or before the date the incentive stock option is exercised or, if later, the date that the amount of tax to be withheld is determined under applicable tax law. Such election shall be
approved by the Administrator and otherwise comply with such rules as the Administrator may adopt to assure compliance with Rule 16b-3, or any successor provision, as then in
effect, of the General Rules and Regulations under the Securities Exchange Act of 1934, if applicable. 


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        (f)    Other Provisions.    The Option Agreement authorized under this Section 9 shall contain such other
provisions as the Administrator shall deem advisable. Any such Option Agreement shall contain such limitations and restrictions upon the exercise of the Option as shall be necessary to ensure that
such Option will be considered an "incentive stock option" as defined in Section 422 of the Internal Revenue Code or to conform to any change therein. 


SECTION 10.
TERMS AND CONDITIONS OF NONQUALIFIED STOCK OPTIONS



        Each
nonqualified stock option granted pursuant to this Section 10 shall be evidenced by a written Option Agreement. The Option Agreement shall be in such form as may be approved
from time to time by the Administrator and may vary from Participant to Participant; provided, however, that each Participant and each Option Agreement shall comply with and be subject to the
following terms and conditions: 


        (a)    Number of Shares and Option Price.    The Option Agreement shall state the total number of shares covered by
the nonqualified stock option. Unless otherwise determined by the Administrator, the option price per share shall be one hundred percent (100%) of the per share Fair Market Value of the Company's
Common Stock on the date the Administrator grants the option. 


        (b)    Term and Exercisability of Nonqualified Stock Option.    The term during which any nonqualified stock option
granted under the Plan may be exercised shall be established in each case by the Administrator. The Option Agreement shall state when the nonqualified stock option becomes exercisable and shall also
state the maximum term during which such option may be exercised. In the event a nonqualified stock option is exercisable immediately, the manner of exercise of such option in the event it is not
exercised in full immediately shall be specified in the Option Agreement. The Administrator may accelerate the exercisability of any nonqualified stock option granted hereunder which is not
immediately exercisable as of the date of grant. 


        (c)    Transferability.    The Administrator may, in its sole discretion, permit the Participant to transfer any or
all nonqualified stock options to any member of the Participant's "immediate family" as such term is defined in Rule 16a-1(e) promulgated under the Securities Exchange Act of 1934,
or any successor provision, or to one or more trusts whose beneficiaries are members of such Participant's "immediate family" or partnerships in which such family members are the only partners;
provided, however, that the Participant cannot receive any consideration for the transfer and such transferred nonqualified stock option shall continue to be subject to the same terms and conditions
as were applicable to such nonqualified stock option immediately prior to its transfer. 


        (d)    No Rights as Shareholder.    A Participant (or the Participant's successor or successors) shall have no rights
as a shareholder with respect to any shares covered by a nonqualified stock option until the date
of the issuance of a stock certificate evidencing such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions or
other rights for which the record date is prior to the date such stock certificate is actually issued (except as otherwise provided in Section 14 of the Plan). 


        (e)    Withholding.    The Company or its Affiliate shall be entitled to withhold and deduct from future wages of the
Participant all legally required amounts necessary to satisfy any and all withholding and employment-related taxes attributable to the Participant's exercise of a nonqualified stock option. In the
event the Participant is required under the Option Agreement to pay the Company or its Affiliate, or make arrangements satisfactory to the Company or its Affiliate respecting payment of, such
withholding and employment-related taxes, the Administrator may, in its discretion and pursuant to such rules as it may adopt, permit the Participant to satisfy such obligation, in whole or in part,
by electing to have the Company or its Affiliate withhold shares of Option Stock otherwise issuable to the Participant as a result of the exercise of the nonqualified stock option having a Fair Market
Value 


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equal
to the minimum required tax withholding, based on the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to the supplemental
income resulting from such exercise. In no event may the Company or its Affiliate withhold shares having a Fair Market Value in excess of such statutory minimum required tax withholding. The
Participant's election to have shares withheld for this purpose shall be made on or before the date the nonqualified stock option is exercised or, if later, the date that the amount of tax to be
withheld is determined under applicable tax law. Such election shall be approved by the Administrator and otherwise comply with such rules as the Administrator may adopt to assure compliance with
Rule 16b-3, or any successor provision, as then in effect, of the General Rules and Regulations under the Securities Exchange Act of 1934, if applicable. 



        (f)    Other Provisions.    The Option Agreement authorized under this Section 10 shall contain such other
provisions as the Administrator shall deem advisable. 


SECTION 11.
RESTRICTED STOCK AWARDS


        Each
Restricted Stock Award granted pursuant to this Section 11 shall be evidenced by a written restricted stock agreement (the "Restricted Stock Agreement"). The Restricted Stock
Agreement shall be in such form as may be approved from time to time by the Administrator and may vary from Participant to Participant; provided, however, that each Participant and each Restricted
Stock Agreement shall comply with and be subject to the following terms and conditions: 


        (a)    Number of Shares.    The Restricted Stock Agreement shall state the total number of shares of Stock covered by
the Restricted Stock Award. 


        (b)    Risks of Forfeiture.    The Restricted Stock Agreement shall set forth the risks of forfeiture, if any, which
shall apply to the shares of Stock covered by the Restricted Stock Award, and shall specify the manner in which such risks of forfeiture shall lapse. The Administrator may, in its sole discretion,
modify the manner in which such risks of forfeiture shall lapse but only with respect to those shares of Stock which are restricted as of the effective date of the modification. 


        (c)    Issuance of Restricted Shares.    The Company shall cause to be issued one or more stock certificates
representing such shares of Stock in the Participant's name, and shall hold each such certificate until such time as the risk of forfeiture and other transfer restrictions set forth in the
Participant's Restricted Stock Agreement have lapsed with respect to the shares represented by the certificate. The Company may place a legend on such certificates describing the risks of forfeiture
and other transfer restrictions set forth in the Participant's Restricted Stock Agreement and providing for the cancellation of such certificates if the shares of Stock subject to the Restricted Stock
Award are forfeited. 


        (d)    Rights as Shareholder.    Until the risks of forfeiture have lapsed or the shares subject to such Restricted
Stock Award have been forfeited, the Participant shall be entitled to vote the shares of Stock represented by such stock certificates and shall receive all dividends attributable to such shares, but
the Participant shall not have any other rights as a shareholder with respect to such shares. 


        (e)    Withholding Taxes.    The Company or its Affiliate shall be entitled to withhold and deduct from future wages
of the Participant all legally required amounts necessary to satisfy any and all withholding and employment-related taxes attributable to the Participant's Restricted Stock Award. In the event the
Participant is required under the Restricted Stock Agreement to pay the Company or its Affiliate, or make arrangements satisfactory to the Company or its Affiliate respecting payment of, such
withholding and employment-related taxes, the Administrator may, in its discretion and pursuant to such rules as it may adopt, permit the Participant to satisfy such obligations, in whole or in part,
by delivering shares of Common Stock, including shares of Stock received pursuant to a Restricted Stock Award on which the risks of forfeiture have lapsed. Such shares shall have a Fair Market Value
equal 


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to
the minimum required tax withholding, based on the minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to the supplemental income
resulting from the lapsing of the risks of forfeiture on such Restricted Stock. In no event may the Participant deliver shares having a Fair Market Value in excess of such statutory minimum required
tax withholding. The Participant's election to deliver shares of Common Stock for this purpose shall be made on or before the date that the amount of tax to be withheld is determined under applicable
tax law. Such election shall be approved by the Administrator and otherwise comply with such rules as the Administrator may adopt to assure compliance with Rule 16b-3, or any
successor provision, as then in effect, of the General Rules and Regulations under the Securities Exchange Act of 1934, if applicable. 


        (f)    Nontransferability.    No Restricted Stock Award shall be transferable, in whole or in part, by the
Participant, other than by will or by the laws of descent and distribution, prior to the date the risks of forfeiture described in the Restricted Stock Agreement have lapsed. If the Participant shall
attempt any transfer of any Restricted Stock Award granted under the Plan prior to such date, such transfer shall be void and the Restricted Stock Award shall terminate. 


        (g)    Other Provisions.    The Restricted Stock Agreement authorized under this Section 11 shall contain such
other provisions as the Administrator shall deem advisable. 


SECTION 12.
PERFORMANCE AWARDS



        Each
Performance Award granted pursuant to this Section 12 shall be evidenced by a written agreement (the "Performance Award Agreement"). The Performance Award Agreement shall be
in such form as may be approved from time to time by the Administrator and may vary from Participant to Participant; provided, however, that each Participant and each Performance Award Agreement shall
comply with and be subject to the following terms and conditions: 


        (a)    Awards.    Performance Awards in the form of Performance Units or Performance Shares may be granted to any
Participant in the Plan. Performance Units shall consist of monetary awards which may be earned or become vested in whole or in part if the Company achieves certain goals established by the
Administrator over a specified Performance Period. Performance Shares shall consist of shares of Stock or other Awards denominated in shares of Stock that may be earned or become vested in whole or in
part if the Company achieves certain goals established by the Administrator over a specified Performance Period. 


        (b)    Performance Goals, Performance Period and Payment.    The Performance Award Agreement shall set forth: 


                (i)    the
number of Performance Units or Performance Shares subject to the Performance Award, and the dollar value of each Performance Unit; 



                (ii)    one
or more performance goals established by the Administrator based on any one, or combination of, earnings per share, return on equity, return on
assets, total shareholder return, net operating income, cash flow, increase in revenue, economic value added, increase in share price or cash flow return on investment, including threshold, target and
maximum levels; 


                (iii)    the
Performance Period over which Performance Units or Performance Shares may be earned or may become vested; 



                (iv)    the
extent to which partial achievement of the goal(s) may result in a payment or vesting of the Performance Award, as determined by the Administrator;
and 


                (v)    the
date upon which payment of Performance Units will be made or Performance Shares will be issued, as the case may be, and the extent to which such
payment or the receipt of such Shares may be deferred. 


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        (c)    Regulatory Compliance.    This Section 12 is intended to comply with the performance-based compensation
requirements of Section 162(m) of the Internal Revenue Code and shall be interpreted in accordance with the rules and regulations thereunder. 


        (d)    Withholding Taxes.    The Company or its Affiliate shall be entitled to withhold and deduct from future wages
of the Participant all legally required amounts necessary to satisfy any and all withholding and employment-related taxes attributable to the Participant's Performance Award. In the event the
Participant is required under the Performance Award Agreement to pay the Company or its Affiliate, or make arrangements satisfactory to the Company or its Affiliate respecting payment of, such
withholding and employment-related taxes, the Administrator may, in its discretion and pursuant to such rules as it may adopt, permit the Participant to satisfy such obligations, in whole or in part,
by delivering shares of Common Stock. Such shares shall have a Fair Market Value equal to the minimum required tax withholding, based on the minimum statutory withholding rates for federal and state
tax purposes, including payroll taxes. In no event may the Participant deliver shares having a Fair Market Value in excess of such statutory minimum required tax withholding. The Participant's
election to deliver shares of Common Stock for this purpose shall be made on or before the date that the amount of tax to be withheld is determined under applicable tax law. Such election shall be
approved by the Administrator and otherwise comply with such rules as the Administrator may adopt to assure compliance with Rule 16b-3, or any successor provision, as then in
effect, of the General Rules and Regulations under the Securities Exchange Act of 1934, if applicable. 


        (e)    Nontransferability.    No Performance Award shall be transferable, in whole or in part, by the Participant,
other than by will or by the laws of descent and distribution. If the Participant shall attempt any transfer of any Performance Award granted under the Plan, such transfer shall be void and the
Performance Award shall terminate. 


        (f)    No Rights as Shareholder.    A Participant (or the Participant's successor or successors) shall have no rights
as a shareholder with respect to any shares covered by a Performance Award until the date of the issuance of a stock certificate evidencing such shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property), distributions or other rights for which the record date is prior to the date such stock certificate is actually issued
(except as otherwise provided in Section 14 of the Plan). 



        (g)    Other Provisions.    The Performance Award Agreement authorized under this Section 12 shall contain such
other provisions as the Administrator shall deem advisable. 


SECTION 13.
STOCK APPRECIATION RIGHTS


        Each
Stock Appreciation Right granted pursuant to this Section 13 shall be evidenced by a written agreement (the "Stock Appreciation Agreement"). The Stock Appreciation Agreement
shall be in such form as may be approved from time to time by the Administrator and may vary from Participant to Participant; provided, however, that each Participant and each Stock Appreciation
Agreement shall comply with and be subject to the following terms and conditions: 


        (a)    Awards.    A Stock Appreciation Right shall entitle the Participant to receive, upon exercise, cash, shares of
Stock, or any combination thereof, having a value equal to the excess of (i) the Fair Market Value of a specified number of shares of Stock on the date of such exercise, over (ii) a
specified exercise price. Unless otherwise determined by the Administrator, the specified exercise price shall not be less than 100% of the Fair Market Value of such shares of Stock on the date of
grant of the Stock Appreciation Right. A Stock Appreciation Right may be granted independent of or in tandem with a previously or contemporaneously granted Option. 


        (b)    Term and Exercisability.    The term during which any Stock Appreciation Right granted under the Plan may be
exercised shall be established in each case by the Administrator. The Stock 


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Appreciation
Agreement shall state when the Stock Appreciation Right becomes exercisable and shall also state the maximum term during which such Stock Appreciation Right may be exercised. In the event
a Stock Appreciation Right is exercisable immediately, the manner of exercise of such Stock Appreciation Right in the event it is not exercised in full immediately shall be specified in the Stock
Appreciation Agreement. The Administrator may accelerate the exercisability of any Stock Appreciation Right granted hereunder which is not immediately exercisable as of the date of grant. If a Stock
Appreciation Right is granted in tandem with an Option, Stock Appreciation Agreement shall set forth the extent to which the exercise of all or a portion of the Stock Appreciation Right shall cancel a
corresponding portion of the Option, and the extent to which the exercise of all or a portion of the Option shall cancel a corresponding portion of the Stock Appreciation Right. 



        (c)    Withholding Taxes.    The Company or its Affiliate shall be entitled to withhold and deduct from future wages
of the Participant all legally required amounts necessary to satisfy any and all withholding and employment-related taxes attributable to the Participant's Stock Appreciation Right. In the event the
Participant is required under the Stock Appreciation Right to pay the Company or its Affiliate, or make arrangements satisfactory to the Company or its Affiliate respecting payment of, such
withholding and employment-related taxes, the Administrator may, in its discretion and pursuant to such rules as it may adopt, permit the Participant to satisfy such obligations, in whole or in part,
by delivering shares of Common Stock. Such shares shall have a Fair Market Value equal to the minimum required tax withholding, based on the minimum statutory withholding rates for federal and state
tax purposes, including payroll taxes. In no event may the Participant deliver shares having a Fair Market Value in excess of such statutory minimum required tax withholding. The Participant's
election to deliver shares of Common Stock for this purpose shall be made on or before the date that the amount of tax to be withheld is determined under applicable tax law. Such election shall be
approved by the Administrator and otherwise comply with such rules as the Administrator may adopt to assure compliance with Rule 16b-3, or any successor provision, as then in
effect, of the General Rules and Regulations under the Securities Exchange Act of 1934, if applicable. 



        (d)    Nontransferability.    No Stock Appreciation Right shall be transferable, in whole or in part, by the
Participant, other than by will or by the laws of descent and distribution. If the Participant shall attempt any transfer of any Stock Appreciation Right granted under the Plan, such transfer shall be
void and the Stock Appreciation Right shall terminate. 


        (e)    No Rights as Shareholder.    A Participant (or the Participant's successor or successors) shall have no rights
as a shareholder with respect to any shares covered by a Stock Appreciation Right until the date of the issuance of a stock certificate evidencing such shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other property), distributions or other rights for which the record date is prior to the date such stock certificate is actually
issued (except as otherwise provided in Section 14 of the Plan). 


        (f)    Other Provisions.    The Stock Appreciation Agreement authorized under this Section 13 shall contain
such other provisions as the Administrator shall deem advisable, including but not limited to any restrictions on the exercise of the Stock Appreciation Right which may be necessary to comply with
Rule 16b-3 of the Securities Exchange Act of 1934, as amended. 


SECTION 14.
RECAPITALIZATION, SALE, MERGER, EXCHANGE

OR LIQUIDATION


        In
the event of an increase or decrease in the number of shares of Common Stock resulting from a subdivision or consolidation of shares, stock dividend, or stock split, the Board may, in
its sole discretion, adjust the number of shares of Stock reserved under Section 6 hereof, the number of shares of Stock covered by each Award, and, if applicable, the price per share thereof
to reflect such change. 


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Additional
shares which may be credited pursuant to such adjustment shall be subject to the same restrictions as are applicable to the shares with respect to which the adjustment relates. 


        Unless
otherwise provided in the agreement with respect to an Award, in the event of an acquisition of the Company through the sale of substantially all of the Company's assets and the
consequent discontinuance of its business or through a merger, consolidation, exchange, reorganization, reclassification, extraordinary dividend, divestiture or liquidation of the Company
(collectively referred to as a "transaction"), the Board may provide for one or more of the following: 



        (a)    the
equitable acceleration of the exercisability of any outstanding Options or Stock Appreciation Rights, the vesting and payment of any Performance Awards, or the
lapsing of the risks of forfeiture on any Restricted Stock Awards; 


        (b)    the
complete termination of this Plan, the cancellation of outstanding Options or Stock Appreciation Rights not exercised prior to a date specified by the Board (which
date shall give Participants a reasonable period of time in which to exercise such Award prior to the effectiveness of such transaction), the cancellation of any Performance Award and the cancellation
of any Restricted Stock Awards for which the risks of forfeiture have not lapsed; 



        (c)    that
Participants holding outstanding Options and Stock Appreciation Rights shall receive, with respect to each share of Stock subject to such Awards, as of the
effective date of any such transaction,
cash in an amount equal to the excess of the Fair Market Value of such Stock on the date immediately preceding the effective date of such transaction over the price per share of such Options or Stock
Appreciation Rights; provided that the Board may, in lieu of such cash payment, distribute to such Participants shares of Common Stock of the Company or shares of stock of any corporation succeeding
the Company by reason of such transaction, such shares having a value equal to the cash payment herein; 



        (d)    that
Participants holding outstanding Restricted Stock Awards and Performance Share Awards shall receive, with respect to each share of Stock subject to such Awards, as
of the effective date of any such transaction, cash in an amount equal to the Fair Market Value of such Stock on the date immediately preceding the effective date of such transaction; provided that
the Board may, in lieu of such cash payment, distribute to such Participants shares of Common Stock of the Company or shares of stock of any corporation succeeding the Company by reason of such
transaction, such shares having a value equal to the cash payment herein; 


        (e)    the
continuance of the Plan with respect to the exercise of Options or Stock Appreciation Rights which were outstanding as of the date of adoption by the Board of such
plan for such transaction and provide to Participants holding such Options and Stock Appreciation Rights the right to exercise their respective Options or Stock Appreciation Rights as to an equivalent
number of shares of stock of the corporation succeeding the Company by reason of such transaction; and 


        (f)    the
continuance of the Plan with respect to Restricted Stock Awards for which the risks of forfeiture have not lapsed as of the date of adoption by the Board of such
plan for such transaction and provide to Participants holding such Awards the right to receive an equivalent number of shares of stock of the corporation succeeding the Company by reason of such
transaction. 


        The
Board may restrict the rights of or the applicability of this Section 14 to the extent necessary to comply with Section 16(b) of the Securities Exchange Act of 1934,
the Internal Revenue Code or any other applicable law or regulation. The grant of an Award pursuant to the Plan shall not limit in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business structure or to merge, exchange or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or
assets. 


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SECTION 15.
INVESTMENT PURPOSE


        No
shares of Stock shall be issued pursuant to the Plan unless and until there has been compliance, in the opinion of Company's counsel, with all applicable legal requirements, including
without limitation, those relating to securities laws and stock exchange listing requirements. As a condition to the issuance of Stock to Participant, the Administrator may require Participant to
(a) represent that the shares of Stock are being acquired for investment and not resale and to make such other representations as the Administrator shall deem necessary or appropriate to
qualify the issuance of the shares as exempt from the Securities Act of 1933 and any other applicable securities laws, and (b) represent that Participant shall not dispose of the shares of
Stock in violation of the Securities Act of 1933 or any other applicable securities laws. 


        As
a further condition to the issuance of Stock to Participant, Participant agrees to the following: 


        (a)    In
the event the Company advises Participant that it plans an underwritten public offering of its Common Stock in compliance with the Securities Act of 1933, as amended,
and the underwriter(s) seek to impose restrictions under which certain shareholders may not sell or contract to sell or grant any option to buy or otherwise dispose of part or all of their rights to
the Common Stock underlying Awards, Participant will not, for a period not to exceed 180 days from the prospectus, sell or contract to sell or grant an option to buy or otherwise dispose of any
Award granted to Participant pursuant to the Plan or any of the underlying shares of Common Stock without the prior written consent of the underwriter(s) or its representative(s). 


        (b)    In
the event the Company makes any public offering of its securities and determines in its sole discretion that it is necessary to reduce the number of issued but
unexercised Options or Stock Appreciation Rights so as to comply with any state's securities or Blue Sky law limitations with respect thereto, the Board shall have the right (i) to accelerate
the exercisability of any Award and the date on which such Award must be exercised, provided that the Company gives Participant prior written notice of such acceleration, and (ii) to cancel any
Awards or portions thereof which Participant does not exercise prior to or contemporaneously with such public offering. 


        (c)    In
the event of a transaction (as defined in Section 14 of the Plan), Participant will comply with Rule 145 of the Securities Act of 1933 and any other
restrictions imposed under other applicable legal or accounting principles if Participant is an "affiliate" (as defined in such applicable legal and accounting principles) at the time of the
transaction, and Participant will execute any documents necessary to ensure compliance with such rules. 


        The
Company reserves the right to place a legend on any stock certificate issued upon the exercise of an Award pursuant to the Plan to assure compliance with this Section 15. 


SECTION 16.
AMENDMENT OF THE PLAN



        The
Board may from time to time, insofar as permitted by law, suspend or discontinue the Plan or revise or amend it in any respect; provided, however, that no such revision or amendment,
except as is authorized in Section 14, shall impair the terms and conditions of any Award which is outstanding on the date of such revision or amendment to the material detriment of the
Participant without the consent of the Participant. Notwithstanding the foregoing, no such revision or amendment shall (i) materially increase the number of shares subject to the Plan except as
provided in Section 14 hereof, (ii) change the designation of the class of employees eligible to receive Awards, (iii) decrease the price at which Options may be granted, or
(iv) materially increase the benefits accruing to Participants under the Plan without the approval of the shareholders of the Company if such approval is required for compliance with the
requirements of any applicable law or regulation. Furthermore, the 


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Plan
may not, without the approval of the shareholders, be amended in any manner that will cause incentive stock options to fail to meet the requirements of Section 422 of the Internal Revenue
Code. 


SECTION 17.
NO OBLIGATION TO EXERCISE OPTION



        The
granting of an Option or Stock Appreciation Right shall impose no obligation upon the Participant to exercise such Option or Stock Appreciation Right. Further, the granting of any
Award hereunder shall not impose upon the Company or any Affiliate any obligation to retain the Participant in its employ for any period. 


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MAKEMUSIC! INC. 2003 EQUITY INCENTIVE PLAN